Charitable Deductions and Ebenezer Scrooge

by | Apr 10, 2009 | Cash Flow, Weekly Column | 1 comment

scrooge.jpgWhen you think about charitable giving, the first name that comes to mind probably isn’t Ebenezer Scrooge. Just the opposite is more likely, since Charles Dickens’s character is so memorably stingy that his name has become a synonym for “miser.” Yet President Obama’s proposals to reduce tax deductions for charitable contributions made me think about Mr. Scrooge.

Early in A Christmas Carol, two men come to ask Scrooge for contributions for the poor. He responds, “Are there no prisons? And the Union workhouses?… Are they still in operation?” Told that they are, he is glad to hear it, and he refuses to donate any money to help the poor. He says, “I help [through his taxes] to support the establishments I have mentioned: they cost enough: and those who are badly off must go there.”

If the Obama plan passes, more Americans may be thinking Scrooge’s position was not that cold-hearted or ungenerous, but more a consequence of poor government policy.

Americans give generously to charity. Not all of that giving is tax-deductible, of course, nor is all of it motivated by the prospect of taking a deduction at tax time. I don’t imagine that reducing the tax deduction for charitable giving would turn most of us into complete Scrooges when it comes to helping those less fortunate.

The Obama plan would cap the tax savings at 28 percent for contributions. It would take effect in 2011, when he plans to let the Bush 2001 tax cuts for upper-income people expire. The double punch of imposing higher taxes on income and reducing deductions on charitable contributions will undoubtedly reduce donations to charities.tax-deduction.jpg

Consider these figures, cited by Dick Morris in his column published at DickMorris.com on March 29, 2009: Four million Americans in 2006 filed tax returns showing adjusted gross incomes of $200,000 or more. That made up 3% of the tax returns, 31% of the income, and 44% of the charitable contributions—81 billion dollars. Under the President’s plan, if those taxpayers donated the same amount, they would pay ten billion dollars more in taxes.

It’s unrealistic to assume that such a significant change in the tax laws wouldn’t make a difference in the amount that Americans give to charity. Lowering the tax deductions for contributions is only one part of a tax proposal that also includes higher taxes on “the rich” and increased benefits for “the poor.” Taken as a whole, this plan signals a shift in attitude when it comes to giving at a time when most charities can ill afford a reduction in giving.

Instead of being encouraged through tax deductions to give to those we choose as worthy of our charity, we would increasingly be forced through higher taxes to give to those the government chooses as worthy of public charity. The effect would be the government taking away from donors the decisions about what causes are worth supporting. Instead, Congress would make more of those decisions.

ten-dollar-bill.jpgTrue, this wouldn’t be likely to make a difference in individual choices to put a ten-dollar bill into a Salvation Army bucket, tithe to the churches we belong to, or write a check for a local family whose home has burned. Yet when it comes to making donations to an arts organization, an educational foundation, or an agency that helps the homeless, I wonder how many of us might begin to think twice. If we perceive that we are already supporting those causes through paying higher taxes, we might just find ourselves agreeing with Ebenezer Scrooge. “I help to support the establishments I have mentioned: they cost enough.”

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